That was how the Financial Times headlined its review of the situation on Wall Street last week. The reason technical bankruptcy of Continental Illinois the eighth largest bank in the United States.
The London stockmarket showed the same downward pattern - suffering the single biggest fall in prices since the fall of Edward Heath's government. same as New York — one stockbroker stating he felt, 'the smell of terror, such as I have not sensed since 1974.
Later in the week the panic spread still further up the financial tree with the shares of Manufacturing Hanover, the fourth largest bank in the United States, losing more than 10 per cent of their value in a single day.
The immediate causes of the banking panic are easy to find Manufacturing Hanover are the US banks most exposed to the enormous foreign debts of Argentina, Brazil, Mexico and other Latin American states underlying causes of the crisis.
In August 1982 the system was brought to the edge of collapse by the threat of Mexico defaulting on its international debt. The Reagan administration responded to the threat both by rapid loans to Mexico and by reflating the American economy ing money into the economy and simultaneously reducing interest burden.
The motor of US economic growth became its massive military build up.
rose far more rapidly than taxation to finance it.
The entire economy was pulled out of recession by the arms expenditure policies associated with it.
fects were dramatic.
has risen by almost twenty per cent in the last year diulie But as the United States economy recovered new contradictions inevitably government budget military build up is colossal - it now stands at well over $200 billion and its financing absorbs two thirds of US personal savings.
With such a high funds going into financing the budget deficit little is left for the needs of capital expenditure by industry, wellello economy has expanded therefore US interest of industrial rates have started to move upwards again - a path which started at the beginning of 1983 and has speeded up recently. These rising interest rates have been reinforced still further by the need of the US economy to pull in foreign funds to finance the savings gap.
debt problem becomes still worse. Each one per cent increase in US interest rates adds well over $1 billion to the debt burden of Latin America and brings forward the day of a possible default on the debt.
'Terror' Because the world capitalist economy is caught in a vise. If the United States suffers economic stagnation the third world debt crisis worsens because the Latin American states do not have a market to export their goods. If the US economy expands on its present course the debt crisis worsens because interest rates soar.
past.
Editor: ALAN FREEMAN Published weekly except two weeks in August and the last week of December Signed articles by contributors do not necessarily represent socialist Action's views. These are expressed in editorials.
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was the sudden The words in London were the Continental Illinois But much more fundamental are the international financial • pourto lower the debt Military expenditure and the economic The short term efUS industrial production in. The US deficit to finance the proportion of available consumer credit and the other reexpansion. the And with the rise in interest rates the foreign Hence last week's banking panic. is a very appropriate word indeed. A FUTURE Kent miners wires demonstration in Mansfield It is not by using sex-